Q1 . A firm makes two products, A and B, on separate manufacturing processes. Th
ID: 2820773 • Letter: Q
Question
Q1. A firm makes two products, A and B, on separate manufacturing processes. The estimated monthly revenues and costs are:
Both products’ manufacturing processes are machine intensive, and the machine times associated with A and B are 300 hours and 500 hours respectively. Product B is bulkier than product A, however, and takes up twice the floor space. Note that for each product, variable costs are directly proportional to sales.
Find the break-even point ( dollar value of sales) for each product Note: Breakeven Point Sales = FC / Contrib Margin %
A) A: $12,500; B: $35,714; Total: $46,667
B) A: $15,625; B: $32,143; Total: $46,667
C) A: $15,625; B: $32,143; Total: $36,508
D) A: $18,750; B: $28,571; Total: $36,508
Q2.
A company at present operates at 80% capacity producing 50,000 units per year. A budget for the year is shown in the table. An order is received from Chile for 5,000 units at $6 F.O.B. (buyer to pay for shipping costs). Special export packing will increase manufacturing costs by $0.50 per unit on this order. In addition, the present variable selling and administrative costs will be reduced to $0.20 per unit (on this order). A commission of 10% on sale price will be payable to the Chilean agent. What is the increase or decrease in total profit if this order is accepted?
A) Increase $13,500
B) Increase $16,000
C) Increase $16,500
D) Increase $17,000
Total $100,000 $14,000 $11,000 $12,000 Estimated sales ($) Variable cost, materials Variable cost, labour Fixed cost, machine depreciation and interest Indirect overhead costs. Process heating costs Rent Gross Profit $50,000 $5,000 $5,000 $2,000 $50,000 $9,000 $6,000 $10,000 $8,000 $15,000 $40,000Explanation / Answer
Product A
total fixed cost
process heating cost
(8000/800)*300
3000
rent
(15000/3)*1
5000
Fixed cost, machine depreciation and interest
2000
total fixed cost
10000
12500
contribution margin ratio
(sales -total variable cost)/sales =(50000-10000)/50000
0.8
break even sales
total fixed cost/contribution margin ratio = 10000/.80
12500
Product B
total fixed cost
process heating cost
(8000/800)*500
5000
rent
(15000/3)*2
10000
Fixed cost, machine depreciation and interest
10000
total fixed cost
25000
35714.28571
contribution margin ratio
(sales -total variable cost)/sales =(50000-15000)/50000
0.7
break even sales
total fixed cost/contribution margin ratio = 10000/.80
35714
total
weight
contribution margin ratio
weight*contribution margin ratio
product A
0.5
0.8
0.4
Product B
0.5
0.7
0.35
composite break even point
0.75
total break even point
total fixed cost/composite contribution margin
(25000+10000)/.75
46667
Answer is A
variable manufacturing expense
(100000/50000)+.5
2.5
variable selling and administrative expense
0.2
commission to agent
6*10%
0.6
total variable cost per unit for special order
3.3
sales value of order
5000*6
30000
less variable cost of special order
5000*3.3
16500
net profit will increase by
13500
Product A
total fixed cost
process heating cost
(8000/800)*300
3000
rent
(15000/3)*1
5000
Fixed cost, machine depreciation and interest
2000
total fixed cost
10000
12500
contribution margin ratio
(sales -total variable cost)/sales =(50000-10000)/50000
0.8
break even sales
total fixed cost/contribution margin ratio = 10000/.80
12500
Product B
total fixed cost
process heating cost
(8000/800)*500
5000
rent
(15000/3)*2
10000
Fixed cost, machine depreciation and interest
10000
total fixed cost
25000
35714.28571
contribution margin ratio
(sales -total variable cost)/sales =(50000-15000)/50000
0.7
break even sales
total fixed cost/contribution margin ratio = 10000/.80
35714
total
weight
contribution margin ratio
weight*contribution margin ratio
product A
0.5
0.8
0.4
Product B
0.5
0.7
0.35
composite break even point
0.75
total break even point
total fixed cost/composite contribution margin
(25000+10000)/.75
46667
Answer is A
variable manufacturing expense
(100000/50000)+.5
2.5
variable selling and administrative expense
0.2
commission to agent
6*10%
0.6
total variable cost per unit for special order
3.3
sales value of order
5000*6
30000
less variable cost of special order
5000*3.3
16500
net profit will increase by
13500
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